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Created on Wednesday, 17 August 2011 08:00

Published on Wednesday, 17 August 2011 08:00

Government Wants Major Role in Mortgage Sector

The problems with the housing sector, in spite of the many foreclosure prevention programs and incentive packages the government has dashed out to mortgage providers, still continues to be  a major obstacle to economic recovery.

The Obama administration understands this fact perfectly, that is why it is so much concerned with helping delinquent homeowners to avoid foreclosure. There cannot be any meaningful process to help get the economy back on its feet without tackling the problems of the housing sector.

After all, the problems facing the nation’s economy was started in part by the downfall of the housing sector.

The government has already put forward a proposal that aims to get rid of surplus housing units on the market, by so doing, helping home prices to stabilize. This same proposal comes with the added advantage of lowering the rental cost of homes, since foreclosed homes that are owned by the government backed Fannie Mae and Freddie Mac would be taken off the market by renting them out to interested people.

Experts in the housing sector within the Obama administration believe that the road to economic recovery would be smooth if the government takes a major role in the mortgage sector.

Already, a greater number of mortgages are insured by Fannie Mae and Freddie Mac; the two mortgage giants that are now owned by the government. The administration plans to extend the role of Fannie Mae and Freddie Mac by making them the principal mortgage insurers in the country.

That way, the government would be able to offer subsidies to those who wish to purchase homes. According to some officials within the administration, the government hopes to achieve this feat by setting up other companies that will operate parallel to Fannie Mae and Freddie Mac but essentially, would all fall under government’s control.

Whether a home loan is insured by Fannie Mae, Freddie Mac or any of the new companies, the essential component will be the fact that it is held by government and lenders would be guaranteed their monies back should such a home loan become delinquent.

Even though this proposal is still at the developmental stage, some analysts are already kicking against it. In the opinion of these people, the government already has a significant influence on the mortgage market.

This is because, the government offers interest deduction on mortgages and as such it would not be totally beneficial to roll out another program that is geared towards offering subsidy to the financial sector. According to these people, mortgage interest deduction should rather be turned into tax credit so it would benefit people who truly need it.

In support of their opposition to this new proposal, opponents claim that government insurance on mortgages would only increase home prices and do very little to reduce the monthly payments homeowners must make to their mortgage holders.